Spanish manufacturer CAF has signed a deal worth £40 million to build 25 new trams for the Midland Metro.

The Urbos 3 trams will replace the 16-strong Ansaldo Trasporti fleet to cater for an anticipated increase in use once the extension between Snow Hill and New Street, via Bull Street, Corporation Street, and Stephenson Street, is open.

The new trams will start running from late 2014 on the current route from Snow Hill to Wolverhampton, with the extension coming on line in 2015.

The West Midlands transport authority Centro claims the extension will boost the economy by £50 million a year and create 1,300 “sustainable new jobs”.

Centro chief executive Geoff Inskip said: “The new Urbos trams are high-quality vehicles which will be a superb addition to public transport in the Midlands.”

Antonio Campos, commercial director of CAF, said: “CAF are thrilled to be involved in the line extension project and believe the trams will make a significant contribution to improving transport links between Birmingham and Wolverhampton.

“The Urbos 3 tram is a stylish vehicle and will add to the character of the West Midlands.”

The new five section air-conditioned trams have can hold around 200 passengers, compared to 156 on the current trams, and have two spaces for wheelchair users.

Each section will have passenger information and CCTV cameras.

Construcciones y Auxiliar de Ferrocariles (CAF) is based in Zaragoza and has recently supplied trains for the UK market, including the Class 332 trains for the Heathrow Express and 64 Class 333 trains for Northern Rail.

CAF employs around 50 people in the UK at offices in Coventry, Edinburgh, and Belfast and will project manage the introduction of the new vehicles from Coventry.

The company has trams in use in cities including Zaragoza, Seville and Belgrade and is manufacturing trams for Houston and Nantes.